What to do with accumulated cash?

[pdoc]

Hi all:

Thank you for the wealth of information and knowledge available on this forum. I have been struggling for a few months now about what to do with the cash that is basically sitting in our checking accounts.

Background information:

• Dual physician couple in our mid-30s


• living in a MCOL area, high tax state.


• Pre- tax annual income ~ 470 k this year (all w-2)


• Available 401-Ks maxed out every year


• Back-door Roths- maxed out every year for last 5 years


• Monthly contribution to a taxable account with Vanguard- 100 % VTSAX


• 2 kids- 6 and 3- have 529s for each~ 60k and 50 k respectively- invested in 100% domestic equities index fund. Do not plan to contribute anymore


• Do not own a house yet- just relocated to this area about a year ago but actively looking for a house. Renting a modest 3 bedroom house.


• Only debt is a business loan ~ 46 K at 3.75 % interest


• Cash ~ 340 K in regular checking accounts.

 

Short term goals:

• Buy a house. Trying to get something in the 500-600 k range. Max budget is 700-750K. Plan to put at least 20 percent down.


• Invest in a potential office building coming up with my practice

 

Basically, through analysis-paralysis we ended up saving a lot of cash. I estimate that to attain achieve above 2 goals, we will need no more than 200 k in cash.

After saving for 3-4 months worth of living expenses, I estimate an extra 100 k in cash left over.

 

I would appreciate any ideas/suggestions about:

• how/where to invest this sum of about 100k. We have high risk tolerance and all our 401-k, taxable accounts and 529s are in equities 100 percent. 529s were frontloaded with a lump sum of cash also. One thing I can think of is paying off business loan but that would still leave us with quite a bit of cash.

 

• Where to keep the cash needed for house purchase/investing in the office?

 

Thanks in advance.

[Lordosis]

I keep my cash in the vanguard prime money market but depending on tax brackets you might be better off in the tax exempt MM.
High yield savings accounts seem popular as well.
If you have more then you need then you can stick more in VTSAX or pay off the loan. Depending on the rate.

[HumbleInvestor]

@pdoc, congratulations on being in a great position financially. If you need that cash in the next year so, then leave it in ally or Vanguard VMMXX kind of funds. If you only need 200k then pay off the business loan and put the rest on taxable minus your efund.

[ENT Doc]

pdoc wrote:

Cash ~ 340 K in regular checking accounts.

Short term goals:
Buy a house. Trying to get something in the 500-600 k range. Max budget is 700-750K. Plan to put at least 20 percent down.
Invest in a potential office building coming up with my practice

Basically, through analysis-paralysis we ended up saving a lot of cash. I estimate that to attain achieve above 2 goals, we will need no more than 200 k in cash. After saving for 3-4 months worth of living expenses, I estimate an extra 100 k in cash left over.

Click to expand...

Well, this depends on the final home purchase price and your down payment, right?  It also depends on the office building price and how the purchase is arranged, right?

340 - 200 - (3-4 months of living expenses) = 100k

Therefore, 3-4 months of living expenses = $40k

So you spend $120-160k a year?  I think that's a bigger issue than where to put the cash.

Put any extra cash towards your asset allocation, now.

[Peds]

pdoc wrote:

After saving for 3-4 months worth of living expenses, I estimate an extra 100 k in cash left over.

Click to expand...

so that gets invested according to your IPS.

pdoc wrote:

Where to keep the cash needed for house purchase/investing in the office?

Click to expand...

where it makes the most after tax sense.

compare HYS, MM, muni MM etc.

[pdoc]

Thanks, all.

@ENT Doc

I should clarify- the expenses include installment to business loan, childcare expenses/school fees (somewhat inefficient due to 2 full time working physicians). Most of our "splurges" are generally on experiences/weekend getaways with kids.

After all the expenditure, we typically have been saving anywhere from 20-30 % of our gross income not including contributions to our retirement accounts. But, I agree, I don't exactly consider ourselves frugal but try to be mindful of our expenses.

[ZZZ]

'We have high risk tolerance'

$340k, which is something like half your net worth, sitting in a checking account earning 0.nothing% fully taxable is the antithesis of high risk tolerance.

Pay off that loan and get your money working for you. You've done well, don't let indecision hold you back.

[adventure]

pdoc wrote:

I would appreciate any ideas/suggestions about:

how/where to invest this sum of about 100k.

Click to expand...

I see a problem here, because you have 340k doing little for you. The number if $340k, not 100.

I would suggest:

1. Pay this off today:

- Only debt is a business loan ~ 46 K at 3.75 % interest

- Add something every year to the 529's. or at least add 10k to them today.  I don't think letting it grow now will give you enough though.

- for your house.. Move 100k to a money market or high interest savings account (you can get ~2.2% now, from Ally or BBVA or others). No risk.

(that's 170k so far...)

- Move 50k to this today: 100 % VTSAX

(that's 220k so far...)

- Move 20k to your high interest savings, as your emergency fund. (you both work, can can cashflow a ton).

(that's 240k so far...)

- leave 20k in a checking account just so you don't bounce checks, etc.

- Move the other 80k to a high interest account for the business loan.

(that's 340k so far...)

 

You aren't ready to pay for the house nor business today, so just move all the money, keep adding to it (see below), and I suspect you'll be able to knock both out in due time. you could always raid the taxable account if you had to in a pinch, if you have to buy the house/and business tomorrow.

 

Going forward

- move the extra each month 20% to VTSAX, and 80% to high interest, it'll get you a house and building someday soonish.

- spend less

- share a beverage together with the interest you are now earning!

 

[jfoxcpacfp]

Anything you plan to use in the next 5 years (the short term) does not go into the market:

• Downpayment on the house (buy high quality corporate bonds timed to mature at date of need)


• e-fund (keep liquid)


• Buy into practice (same as downpayment)


• Pay down the business loan? Can’t tell whether I would recommend, don’t know enough about overall situation, rate is reasonable and fully deductible, unlike other types of interest

The rest goes into your long-term investments, allocated for optimal long-term growth (VTSAX, your preference). The only way to really make the best decisions for your family on an ongoing basis is with some version of a dedicated, flexible financial plan, whether DIY or with a financial planner.

Of course, the above assumes you already have appropriate amounts of term life and LTDI in place for both of you.

When Low Interest Rates are OK

[I Find This Humerus]

is that 470k combined or each?

[pdoc]

combined

[pdoc]

Thank you all for your kind responses. This thread has certainly helped us get back on track to investing our money.

Cheers!